According to a wide-ranging company survey, Britain's economic recovery stalled prior to the arrival of the Omicron variant of Covid and the dampening effect of the government's plan B restrictions on consumer spending during the Christmas shopping season.

Businesses blamed spiraling inflation and import shortages for a drop in sales in the fourth quarter, which meant that an expansion that began in the spring and summer came to a halt.

The British Chambers of Commerce (BCC) added in a message that many respondents to its quarterly survey of nearly 5,500 firms revealed that they were running low on cash and had scrapped investment plans to stay afloat into the new year.

According to the BCC's head of economics Suren Thiru, sales growth has stalled as businesses struggle with "mounting headwinds" such as inflation, a shortage of skilled workers, and difficulties sourcing products from overseas.

“The persistent weakness in cash flow is troubling because it leaves businesses more exposed to the economic impact of Omicron, rising inflation, and potential further restrictions,” he said.

The survey also revealed that the prospect of interest rate hikes by Bank of England officials was a source of concern for firms that had taken on additional debt in the last 20 months to deal with the pandemic. In December, the bank raised interest rates to 0.25%.

According to a number of reports, the UK economy is in for a difficult spring, with a sharp rise in consumer prices reducing household disposable income and undermining consumer confidence.

Official reports stated that the consumer price index (CPI) increased to 5.1% in November, owing to persistent increases in oil and gas prices, as well as other commodities such as wheat and copper.

Consumer spending has fueled the recovery, accounting for more than 80% of UK growth, while government spending, such as the NHS, has made up the majority of the difference.

Second quarter of 2021

GDP growth reached 5.5% in the second quarter of 2021, but then fell back to 1.3% in the third quarter. According to the BCC survey, which was conducted in the final week of November, the economy was on track to contract in the fourth quarter.

Thiru predicted that the economy would contract in the first few months of this year as the message to work from home and avoid large gatherings impacted sales.

He added that "the UK economy is starting 2022 facing some key challenges. The renewed reluctance among consumers to spend and staff shortages triggered by Omicron and plan B may mean that the UK economy contracts in the near term, particularly if more restrictions are needed."

"Rising inflation is likely to limit UK’s growth prospects this year by eroding consumers’ spending power and squeezing firms’ profit margins and their ability to invest. The notable uptick in concerns over higher interest rates underscores the need for the Bank of England to proceed with caution on further rate rises to avoid undermining confidence and an already fragile recovery."